New laws forcing expat workers and their employers to contribute into China’s
social welfare scheme are causing confusion among those expected to pay.

On October 15,legislation came into effectmaking it compulsory for foreign workers and the companies that employ them to pay a portion of their salary to the Chinese government.

But the hundreds of thousands of individuals affected by the tax-grab still don’t know when payments are due to be made and how the new scheme will be implemented. Typically, when a new Chinese law becomes effective implementation rules are issued shortly afterwards explaining how the new law will work.

However, these rules are not likely to be issued until the end of November and employers are in the dark as to what they will be liable for. The level of contributions is expected to average 11 per cent for employees and 37 per cent for employers. The money will go towards benefits such as pension provision, medical insurance and unemployment benefit.

There are further complications, as the payments aren’t calculated on a unified national basis but vary from region to region. For example, Beijing-based employers will pay 33 per cent while Shanghai-based ones will pay 37 per cent.

There are also local differences on which authorities are removing a salary cap on how much employers will have to contribute for high-earning staff.

Confusion also arises from conflicting reports as to when the payments will be backdated to and how long employers have to make these first contributions. It has been suggested by a quasi-government agency in Beijing (FESCO) that payments will be backdated to July and should be collected by the end of the year.

Chris Devonshire-Ellis, principal at China-based tax firmDezan Shira & Associates, said: “There is real confusion among employers who want to budget for 2012 but are unable to because they’re not sure what costs they are liable for. Many are facing a significant increase in overheads.”

Dezan Shira & Associates has also contacted some local authorities in China who were actually unaware that they would need to collect these payments from foreign workers.

Mr Devonshire-Ellis added: “Employers are unlikely to give their foreign workers a pay rise as they have to pay upwards of 30 per cent extra towards their social insurance. And the employee is going to be out of pocket as they have their own contributions to make.”